AFF Sentinel Vol. 2, #15

What Is the Big Picture?

What is the importance of beef imports to the economic profitability of American cattlemen? The following is the first of a series examining the economic facts involved.

Thomas E. Elam, Ph.D., Adjunct Fellow, with the Center for Global Food Issues, Hudson Institute, first published a thorough study of the issue in 2003. This is an edited version.

The comparative advantages of the agricultural systems of any country are shaped by a combination of economics and natural resource endowments. Nowhere is that more evident than with U.S. cattle, in both its beef and dairy systems.

Three major forces combine to make the U.S. beef production system very different from that of any other in the world and an incredible example of the successful application of the principle of comparative advantage. Those forces are: A large, and relatively rich, beef and dairy consuming population; over 350 million acres of highly productive cropland; and large expanses of productive grasslands.

Because of these features, we have built a unique system that produces grain-fed beef for both the domestic and export market while our dairy production system, measured by milk per cow, is one of the world's most productive.

However, we cannot produce all the types of beef demanded by the U.S. consumer at costs competitive with the rest of the world. Over time, a system has evolved in which we produce, consume, export, and import large amounts of beef.

The increase in U.S. beef exports did not occur solely because of comparative advantage. Opening export markets take years of negotiations on trade barriers. All of the three major destinations for U.S. beef, Japan, Korea and Mexico, were opened for trade after many years of trade negotiations.

The long-term potential global market for U.S. fed beef is far from saturated. China and other Asian destinations hold great promise for future growth once the current BSE issues are resolved. In addition, if the United State-European Union trade dispute over hormone use in feedlots is ever resolved, our European exports could easily equal those to Japan or Korea before BSE.

The low production cost of U.S. grain-fed beef is a formidable barrier for other countries to overcome. Other countries with large beef cattle herds (Brazil, Argentina, Australia, and New Zealand) 1) do not have the grain to feed cattle; 2) lack a domestic market for fed beef; or, 3) lack the infrastructure to export beef. As a result, the United States is the only country in the world able to supply large volumes of high quality fed beef. This is unlikely to change in the foreseeable future.

Ground beef market

There are two main segments to the overall U.S. beef market. One is a high value per pound segment associated with the grain-fed beef, as seen in the form of the tender steaks and roasts. The other is the 40-50 percent of the beef supply we eat as ground meat (hamburger) that is too tough to consume without grinding. Our exports are mostly the high value beef and the imports are mainly the beef ground for hamburger.

America could produce lean, but not very tender, beef from grass-fed steers and heifers and use that to make hamburger. However, we are better off sending cattle to feedlots to produce tender high value beef (fed steers and heifers) while producing a lesser amount of lower value hamburger (from beef and dairy cows) as a by-product. Through beef trade, particularly by importing beef for the hamburger market, we can focus on sending as many animals as possible through feedlots and thus increasing their value. With a $400-500 difference in the market value of a cow versus a fed steer or heifer this trend represents a huge increase in value to the beef industry (roughly $15 billion a year!). Meanwhile, with the reduction in cow numbers, cow slaughter has dropped from 11.5 million head in 1975 to only 5.2 million in 2004 (USDA).

The import pattern of beef into the U.S. reflects the mix of cattle we produce, especially in recent times. Available detailed beef import data from USDA from 1989 to 2002 shows that the quantity of boneless beef imported into the U.S., most of which is for ground beef production, has increased steadily since 1996. The increase was especially large in the last several years as U.S. cow slaughter declined in the current cycle. Fresh and frozen boneless beef imports have gone from about 600,000 metric tons in 1989 to over 958,000 metric tons in 2004. The increase from 858,000 tons in 2003 to 2004's total has been entirely due to the loss of Canadian cow beef.

For the full test of Elam's entire report, click here.

Next Time: How Cow/Calf Producers Fit Into the Big Picture

Major portions of the above were first published in the Dec. 2003 issue of CALF News Cattle Feeder.

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